How much should you spend on SPIFFs?

A SPIFF, also known as a Sales Performance Incentive Fund (sometimes written as SPIF or SPIV), represents a unique incentive program. In this setup, salespeople receive a discreet bonus for successfully closing a sale or scheduling a demo. Unlike conventional sales incentives, SPIFFs often come with a cash value. Currently, the prevalent method of delivering SPIFFs is through reloadable debit cards. However, they can also be provided in the form of gift cards, merchandise, or experiences.

When it comes to allocating budgets for sales SPIFFs, there’s no one-size-fits-all answer. However, to better understand how much you should spend on SPIFFs, first, you must assess the number of participating sales reps and calculate the cost of both cash and non-cash SPIFFs per rep.

Secondly, it’s important to define clear program objectives, align the budget with sales compensation, maximize response while staying within budget, and determine how often you’ll distribute SPIFFs. Let’s take a closer look:

Set clear objectives that are quantifiable and achievable.

Define objectives that are quantifiable and achievable. For instance, set goals like increasing sales of a specific product by 20% compared to the previous year during a specific timeframe (e.g., July through September). Additional objectives could focus on productivity metrics, market share growth, or optimizing product mix for gross profit improvement.

• We recommend tailoring the SPIFF program to your organization’s unique needs and sales goals.
• Understand what you want to achieve—whether it’s driving specific product sales, increasing revenue, clearing inventory, achieving sales milestones, or enhancing overall performance.

Budget without competing with sales compensation.

SPIFFs should complement, not overshadow, the regular sales compensation plan.

A general rule of thumb is to allow participants to earn approximately 5-7% of their average income (in perceived value) during the program duration. Consider the degree of difficulty—the more challenging the goal, the higher the potential award value.

Evaluate the incremental results and compare them to the expected outcomes without the program (expressed in gross profit dollars minus program expenses).

• Percentage of sales revenue: Allocate a percentage of total sales revenue to SPIFFs. The exact percentage depends on your company’s size and industry norms.
• Fixed amount per sale: Set a fixed dollar amount for each sale. This approach ensures consistency.
• Tiered approach: Consider different SPIFF amounts based on performance tiers (e.g., Top performers receive higher rewards).

Maximize response at minimal expense.

The goal is to encourage individual or team responses to program opportunities while minimizing costs. Think of the frequent flyer mile strategy. The value of a mile is small, but the response (such as flying repeatedly with a specific airline) is significant. For 1,000 miles, approximately $10 in expense to the sponsoring company, airlines and partners drive hundreds and sometimes thousands of dollars in response.

Ensure that every dollar spent on a SPIFF generates at least a dollar’s worth of response.

Decide on frequency and timing.

SPIFFs are infrequent and usually offered as special, time-limited promotions or incentives. To keep sales staff engaged and motivated, it’s important to vary the timing and criteria of SPIFFs. By keeping sales reps guessing about when the next SPIFF might occur, you discourage them from delaying sales in anticipation of a SPIFF.

• Decide how often you’ll distribute SPIFFs (weekly, monthly, quarterly).
• Immediate rewards (same day) can boost motivation, while delayed rewards (end of the month) may encourage sustained effort.

Measure ROI.

Continuously track the impact of SPIFFs on sales performance. Calculate the return on investment (ROI) to assess the program’s effectiveness.

Remember that there’s no one-size-fits-all answer to how much should you spend on SPIFFs. The right budget depends on your company’s size, industry, and specific sales goals. Be flexible and adjust your SPIFF budget as you evaluate the program’s success.